The Risks And Rewards Of Internationalising Into Emerging Markets

Flipkart's application loading page, left, and website are displayed on an Apple Inc. iPhone 5c and iPad respectively in an arranged photograph in Hong Kong, China, on Wednesday, May 21, 2014. Flipkart, India's largest online retailer, will buy competitor Myntra.com, according to people with knowledge of the talks, to gain a business with higher margins and strengthen its position in the local market against Amazon.com Inc. Photographer: Brent Lewin/Bloomberg via Getty Images

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Commercialisation internationally offers tremendous opportunity that can change the trajectory of internet companies. This route has great after-effects such as the pull created on AAA talent and quality investors. Given the potential and the maturity, developed markets such as Canada or West Europe were the first choice for internationalisation given opportunities across emerging markets like India or South East Asia, appeared smaller. However, does the trend still hold true today?

These markets are witnessing a consumer revolution led by adoption of mobile. Mobile is the biggest tech shift that the world has seen in years altering users online consumption pattern. But specifically for emerging markets, the adoption has been faster which ultimately resulted in shortening the web era by almost a decade. If we talk pure numbers, there are over 3 billion mobile users in Asia Pacific and India accounts for almost one third of them. Moreover, as per a research company, Mediacells, India is estimated to add over 200 million smartphone users this year surpassing US in absolute numbers. From an Internet consumption perspective, it is estimated that over 2.5 million terabytes of data/month will be consumed on mobile by Asia Pacific users in 2015. This is almost 1TB every second.

With adequate preparation, these markets can open up great opportunities. For example, India has become the fastest growing market for Amazon globally just post two years of setting up operations. The likes of Uber, AirBnB and BlaBlaCar are all trying to localise their business models to various APAC and MEA markets. Additionally, investors are pouring in capital to support such companies in their expansion. Alibaba, went public and is now trading at a market cap of over $250 billion, ~1.7x that of Amazon. Flipkart, India's Amazon, challenged Amazon by raising $1.2 billion over a period of last six months and Amazon committed $2 billion into the Indian market, as an answer to that challenge. Overall, there is no doubt that these markets cannot be ignored anymore. Today, organisations like, Katalyzers are successfully partnering with leading technology companies to create scalable ventures across Asia Pacific, Middle East and Africa.

But, when is the right time? Before maturation of a business model, such a step puts them at the risk of replicating a costly mistake detrimental to a startup. If they expand too late, companies end up wasting resources fighting or acquiring local players that are basically clones of their business model. Above all, today these clones are emerging earlier than what used to happen a few years earlier. Institutional investors are also aggressively supporting these companies, banking on the proven case studies in other markets. This has shrunk the window of opportunity even further. Airbnb chose to internationalise before Wimdu, the Rocket clone, could establish itself in the Europe/Asian markets. Amazon and Expedia, however, may have been a tad bit late in their expansions. Expedia faced difficulty in establishing itself in the region, whereas Amazon's journey to achieve dominance has been expensive.

The next obvious question--identifying the right time within this short window and the key elements required to aide this? Readiness in such cases has to be from day 1. This ensures organisation wide openness towards cultural feedback and hence, wariness about the right time to deploy resources in international markets. Second, strong capitals can go a long way in creating the winning combination for realising international potential. Last and the most critical input to a successful expansion is the first partner or first hire. The first partner or hire needs to be aligned to your culture and at the same time needs to be local enough to devise smart on-ground strategies.

In short, emerging markets, given their potential, will start to feature in priority markets for all mobile-first companies. But as the window of opportunity shrinks, founders will need to adjust their approach and strategies. Building the right culture and management team, being well capitalised and partnering with the right set of guys for the international mandate are a few inputs that can potentially alter the ability to globalise.